<PAGE>
MORGAN STANLEY DEAN WITTER DEVELOPING Two World Trade Center
GROWTH SECURITIES TRUST New York, New York 10048
LETTER TO THE SHAREHOLDERS September 30, 1998
DEAR SHAREHOLDER:
The widespread volatility that characterized the past year had negative
repercussions for the small cap market overall and for Morgan Stanley Dean
Witter Developing Growth Securities in particular. The Asian economic crisis
and the collapse of the Russian ruble have had a vast impact worldwide. At the
domestic level, two factors -- the decline in the stock market and the Federal
Reserve Board's bail out of a prominent "hedge" fund, Long-Term Capital
Management -- combined to create a "credit crunch" that soon widened to
crisis-level proportions in the high-yield and new-issue markets. As a result,
investors in junk bonds and small-cap growth stocks experienced extensive
losses.
During the second quarter of 1998, when it appeared that a large sell-off might
be imminent, the Fund began to raise cash as a defensive move. In March, three
percent of net assets were in cash; by September, the Fund's cash position had
increased to 17 percent of net assets. To further protect capital, we narrowed
the number of names held, focused on higher quality, moved toward less-volatile
growth stocks and minimized exposure to companies with large investments in the
Asian markets. We believe that these moves helped the Fund mitigate the
significant losses that were experienced throughout the small-cap sector during
the second half of 1998.
PERFORMANCE
Morgan Stanley Dean Witter Developing Growth Securities performed very well
over the first half of 1998. For the six months ended June 30, 1998, the Fund's
Class B shares posted a total return of 8.75 percent, compared to 4.93 percent
for the Russell 2000 Index, a well-known benchmark for small cap stocks.
However, July and August proved to be extremely tumultuous for small-caps.
For the fiscal year ended September 30, 1998, the Fund's Class A, B, C and D
shares posted total returns of -- 18.26 percent, -- 18.88 percent, -- 18.88
percent and -- 18.05 percent, respectively. Over the same period, the Russell
2000 and the Lipper Analytical Services, Inc. Small Cap Funds Index
<PAGE>
MORGAN STANLEY DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
LETTER TO THE SHAREHOLDERS September 30, 1998, continued
registered total returns of -- 19.02 percent and -- 20.60 percent,
respectively. Performance of the Fund's four share classes varies because of
differing expenses.
The accompanying chart illustrates the growth of a hypothetical $10,000
investment in the Fund's Class B shares for the 10-year period ended September
30, 1998, versus similar investments in the issues that comprise the Standard &
Poor's 500 Composite Stock Price Index (S&P 500), the Russell 2000 and the
Lipper Small Cap Index.
THE PORTFOLIO
As of fiscal year-end, the portfolio had a more conservative stance, with an 81
percent position in equities, 17 percent in cash and two percent in bonds.
Although sector weightings remained fairly constant throughout the year (see
the table below), the companies we owned within those sectors changed as the
Fund took a less aggressive position. Assets were moved to companies with lower
price/earnings (P/E) ratios and lower expectations, as the portfolio manager
believed these investments were less likely to suffer when market confidence
fell and earnings growth rates diminished.
Over the course of the fiscal year, the Fund invested heavily in initial public
offerings (IPOs). As of September 30, the Fund's top 10 equity holdings
included Bisys Group, Iron Mountain, Steris, Lason, Mapics, Xomed, National
Computer, Concord EFS, Metzler Group and Jacor Communications; of these, five
completed their initial public offering (IPO) within the past three years.
Recent market conditions have stalled the IPO calendar; however, we view this
as a temporary situation.
The Fund's largest positions exhibit the characteristics that the Fund
continues to look for in buying and holding a small company's stocks: favorable
risk/reward ratios; track records as proven leaders in large, fragmented
industries; improving fundamentals; and the potential to meet or beat current
earnings expectations.
LOOKING AHEAD
Following the end of the period under review, the Russell 2000 Index plunged
even further. On October 8, the Russell 2000 fell to a new low, down 38 percent
from its high in April 1998. However, we believe that the small-cap sector is
poised for a comeback.
Indications that small caps may be headed for an upturn include the fact that
valuations are at a 20 year low relative to the S&P 500, and that the large and
mid-cap managers who once peppered their portfolios with small stocks are
expected to return to the sector because of this relative low valuation.
Furthermore, because of the less liquid nature of small stocks any money flow
into them should help foster a rebound.
2
<PAGE>
MORGAN STANLEY DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
LETTER TO THE SHAREHOLDERS September 30, 1998, continued
We appreciate your support of Morgan Stanley Dean Witter Developing Growth
Securities and look forward to continuing to serve your investment needs and
objectives.
Very truly yours,
/s/ Charles A. Fiumefreddo
CHARLES A. FIUMEFREDDO
Chairman of the Board
3
<PAGE>
MORGAN STANLEY DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
FUND PERFORMANCE September 30, 1998
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[LINE CHART]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. PERFORMANCE FOR CLASS A,
CLASS C, AND CLASS D SHARES WILL VARY FROM THE PERFORMANCE OF CLASS B SHARES
SHOWN ABOVE DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B SHARES**
- --------------------------------------------------------------
PERIOD ENDED 9/30/98
- ----------------------
<S> <C> <C>
1 Year (18.88)%(1) (22.56)%(2)
5 Years 8.23%(1) 7.94%(2)
Ten Years 12.20%(1) 12.20%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES++
- --------------------------------------------------------------
PERIOD ENDED 9/30/98
- ---------------------------
<S> <C> <C>
1 Year (18.88)%(1) (19.61)%(2)
Since Inception (7/28/97) (8.17)%(1) (8.17)%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES+
- --------------------------------------------------------------
PERIOD ENDED 9/30/98
- ---------------------------
<S> <C> <C>
1 Year (18.26)%(1) (22.55)%(2)
Since Inception (7/28/97) (7.45)%(1) (11.61)%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS D SHARES++
- --------------------------------------------------------------
PERIOD ENDED 9/30/98
- ---------------------------
<S> <C>
1 Year (18.05)%(1)
Since Inception (7/28/97) (7.23)%(1)
</TABLE>
- ---------------
(1) Figure shown assumes reinvestment of all distributions and does not
reflect the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction
of the maximum applicable sales charge. See the Fund's current prospectus
for complete details on fees and sales charges.
(3) Closing value assuming a complete redemption on September 30, 1998.
(4) The Standard & Poor's 500 Stock Index (S&P 500) is a broad-based index,
the performance of which is based on the average performance of 500
widely held common stocks. The performance of the Index does not include
any expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(5) The Russell 2000 Index is a capitalization weighted index which is
comprised of 2000 of the smallest stocks (on the basis of capitalization)
in the Russell 3000 Index. The Index does not include any expenses, fees,
or charges. The Index is unmanaged and should not be considered an
investment.
(6) The Lipper Small Cap Fund Index is an equally-weighted performance index
of the largest qualifying funds (based on net assets) in the Lipper Small
Cap Funds objective. The Index, which is adjusted for capital gains
distributions and income dividends, is unmanaged and should not be
considered an investment. There are currently 30 funds represented in
this index.
* For periods of less than one year, the fund quotes its total return on a
non-annualized basis.
** The maximum contingent deferred sales charge (CDSC) for Class B is 5.0%.
The CDSC declines to 0% after six years.
+ The maximum front-end sales charge for Class A is 5.25%.
++ The maximum CDSC for Class C shares is 1% for shares redeemed within one
year of purchase.
++ Class D shares have no sales charge.
4
<PAGE>
MORGAN STANLEY DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
PORTFOLIO OF INVESTMENTS September 30, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (81.6%)
Advertising (3.3%)
90,000 Abacus Direct Corp.* ................... $ 4,578,750
110,000 Boron, LePore & Associates, Inc.*....... 4,152,500
100,000 CKS Group, Inc.* ....................... 1,737,500
120,900 HA-LO Industries, Inc.* ................ 3,536,325
104,000 Lamar Advertising Co.* ................. 2,873,000
175,000 Outdoor Systems, Inc.* ................. 3,412,500
------------
20,290,575
------------
Airlines (0.9%)
172,500 Midwest Express Holdings, Inc.* ........ 5,778,750
------------
Apparel (0.6%)
200,000 Quiksilver, Inc.* ...................... 3,637,500
------------
Auto Parts - Original Equipment (0.5%)
150,000 Tower Automotive, Inc.* ................ 2,962,500
------------
Biotechnology (2.5%)
164,000 BioChem Pharma Inc. (Canada)* .......... 2,993,000
250,000 Medco Research, Inc.* .................. 5,421,875
225,000 Millennium Pharmaceuticals, Inc.*....... 3,825,000
85,000 PathoGenesis Corp.* .................... 2,826,250
------------
15,066,125
------------
Books/Magazine (0.3%)
98,000 CMP Media Inc. (Class A)* .............. 980,000
65,000 Penton Media, Inc. ..................... 885,625
------------
1,865,625
------------
Broadcasting (1.6%)
130,000 Jacor Communications, Inc.* ............ 6,573,125
100,000 Metro Networks, Inc.* .................. 3,525,000
------------
10,098,125
------------
Business Services (4.0%)
266,000 Concord EFS, Inc.* ..................... 6,783,000
265,960 Dendrite International, Inc.* .......... 6,283,305
183,100 Hagler Bailly, Inc.* ................... 3,547,562
195,800 Metzler Group, Inc. (The)* ............. 6,583,775
100,000 Saville Systems PLC (ADR)
(Ireland)* ............................. 1,425,000
------------
24,622,642
------------
Cellular Telephone (0.5%)
160,000 Vanguard Cellular Systems, Inc.
(Class A)* ............................. 3,000,000
------------
Computers Software & Services (19.2%)
400,000 4Front Technologies, Inc.* ............. 3,400,000
100,500 AFC Cable Systems, Inc.* ............... 2,298,937
200,000 American Management Systems,
Inc.* .................................. 5,400,000
70,000 Analysts International Corp. ........... 2,091,250
145,000 AXENT Technologies, Inc.* .............. 2,691,562
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
199,000 Brio Techology, Inc.* .................. $ 1,915,375
150,000 CACI International Inc. (Class A)*...... 2,325,000
80,000 Citrix Systems, Inc.* .................. 5,680,000
100,000 DST Systems, Inc.* ..................... 5,275,000
68,800 Entrust Technologies Inc.* ............. 1,014,800
140,000 GeoTel Communications Corp.* ........... 3,762,500
100,000 Hutchinson Technology Inc.* ............ 1,700,000
100,000 Information Management
Resources, Inc.* ....................... 2,462,500
140,000 Intelligroup, Inc.* .................... 2,362,500
135,000 Intuit Inc.* ........................... 6,277,500
55,000 Keane, Inc.* ........................... 1,931,875
130,000 Learning Company, Inc. (The)* .......... 2,575,625
360,000 MAPICS, Inc.* .......................... 7,875,000
100,000 Micromuse Inc.* ........................ 1,775,000
245,000 National Computer Systems, Inc. ........ 7,212,187
125,000 New Era of Networks, Inc.* ............. 5,093,750
164,000 Pegasus Systems, Inc.* ................. 2,070,500
125,800 Peregine Systems, Inc.* ................ 5,016,275
135,000 Pinnacle Systems, Inc.* ................ 3,408,750
180,000 Safeguard Scientifics, Inc.* ........... 4,668,750
360,400 Segue Software, Inc.* .................. 5,946,600
210,000 Software AG Systems, Inc.* ............. 3,570,000
10,000 Systems & Computer Technology
Corp.* ................................. 125,000
200,000 The Bisys Group, Inc.* ................. 8,712,500
111,000 Veritas Software Corp.* ................ 6,125,812
88,000 Visio Corp.* ........................... 2,112,000
------------
116,876,548
------------
Consumer Specialities (0.5%)
92,000 Fossil, Inc.* .......................... 1,242,000
194,000 Oakley, Inc.* .......................... 1,867,250
------------
3,109,250
------------
Contract Drilling (0.2%)
100,000 ENSCO International, Inc. .............. 1,081,250
------------
Diversified Commercial Services (4.5%)
69,000 ABR Information Services, Inc.* ........ 940,125
130,300 Charles River Associates Inc.* ......... 3,062,050
115,000 Dycom Industries, Inc.* ................ 3,579,375
285,000 Iron Mountain, Inc.* ................... 8,265,000
165,000 Lason, Inc.* ........................... 8,353,125
130,000 Pittway Corp. (Class A) ................ 3,103,750
------------
27,303,425
------------
Education (2.8%)
165,400 Apollo Group, Inc. (Class A)* .......... 4,610,525
150,000 Education Management Corp.* ............ 5,325,000
100,000 ITT Educational Services, Inc.* ........ 3,200,000
165,000 School Speciality, Inc.* ............... 2,516,250
68,000 Sylvan Learning Systems, Inc.* ......... 1,564,000
------------
17,215,775
------------
Environmental Services (0.5%)
23,000 American Disposal Services, Inc.*....... 891,250
60,000 Casella Waste Systems, Inc.
(Class A) .............................. 2,025,000
------------
2,916,250
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
PORTFOLIO OF INVESTMENTS September 30, 1998, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------
<S> <C> <C>
Finance Companies (1.3%)
80,000 FINOVA Group Inc. ....................... $ 3,995,000
95,000 HealthCare Financial Partners,
Inc.* .................................... 3,978,125
------------
7,973,125
------------
Home Building (0.6%)
235,000 D.R. Horton, Inc. ........................ 3,760,000
------------
Home Furnishings (0.3%)
90,000 Furniture Brands International,
Inc.* .................................... 1,755,000
------------
Insurance (2.1%)
65,000 CMAC Investment Corp. .................... 2,827,500
66,000 Delphi Financial Group, Inc. (Class
A)* ...................................... 2,598,750
65,000 Executive Risk, Inc. .................... 2,929,062
90,000 Fremont General Corp. .................... 4,320,000
------------
12,675,312
------------
Internet (2.6%)
120,000 At Home Corp. (Series A)* ................ 5,722,500
60,000 BroadVision, Inc.* ....................... 626,250
90,000 Excite, Inc.* ............................ 3,678,750
170,000 Lycos, Inc.* ............................. 5,737,500
------------
15,765,000
------------
Internet Services (0.5%)
53,200 CMG Information Services, Inc. ........... 2,826,250
------------
Managed Health Care (0.5%)
84,500 Access Health, Inc.* ..................... 3,100,094
------------
Medical Specialties (6.0%)
160,000 Arterial Vascular Engineering,
Inc.* .................................... 5,910,000
124,000 ArthroCare Corp.* ........................ 1,550,000
80,000 Bard (C.R.), Inc. ........................ 2,950,000
113,000 Cytyc Corp.* ............................. 1,151,187
240,000 Haemonetics Corp.* ....................... 4,620,000
39,700 Horizon Medical Products, Inc.* .......... 213,387
325,300 Orthofix International N.V.* ............. 3,822,275
300,000 STERIS Corp.* ............................ 8,437,500
189,500 Xomed Surgical Products, Inc.* ........... 7,745,812
------------
36,400,161
------------
Medical/Dental Distributors (0.5%)
80,000 Schein (Henry), Inc.* .................... 2,780,000
------------
Military/Gov't/Technical (0.3%)
97,000 Nichols Research Corp.* .................. 1,867,250
------------
Movies/Entertainment (1.3%)
100,000 Cinar Films, Inc. (Class B)
(Canada)* ................................ 1,743,750
80,000 Family Golf Centers, Inc.* ............... 1,410,000
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------
<S> <C> <C>
64,600 Medialink Workdwide Inc.* ................ $ 1,065,900
218,500 Steiner Leisure Ltd.* .................... 3,386,750
------------
7,606,400
------------
Office Equipment & Supplies (0.8%)
130,000 Consolidated Graphics, Inc.* ............. 4,940,000
------------
Oil & Gas Production (0.5%)
170,000 Enron Oil & Gas Co. ...................... 2,975,000
------------
Oil Drilling (0.7%)
125,000 Transocean Offshore Inc. ................. 4,335,938
------------
Oilfield Services/Equipment (0.8%)
78,000 Cooper Cameron Corp.* .................... 2,193,750
47,000 Smith International, Inc.* ............... 1,289,563
100,000 Veritas DGC Inc.* ........................ 1,668,750
------------
5,152,063
------------
<PAGE>
Pharmaceuticals (0.5%)
120,000 Coulter Pharmaceutical, Inc.* ............ 2,970,000
------------
Precious Metals (1.9%)
300,000 Ashanti Goldfield Company Ltd.
(GDR) (Ghana) ............................ 2,737,500
400,000 Battle Mountain Gold Co. ................. 2,425,000
110,000 Meridian Gold Inc. (Canada)* ............. 495,000
135,000 Placer Dome Inc. (Canada) ................ 1,864,688
120,000 Stillwater Mining Co.* ................... 3,787,500
------------
11,309,688
------------
Printing Forms (0.6%)
425,000 American Bank Note Holographics,
Inc.* .................................... 3,346,875
------------
Real Estate Investment Trust (1.3%)
75,000 Apartment Investment &
Management Co. ........................... 2,831,250
180,000 Golf Trust of America, Inc. .............. 5,355,000
------------
8,186,250
------------
Recreational Products/Toys (0.7%)
245,000 THQ, Inc.* ............................... 4,272,188
------------
Restaurants (0.2%)
208,000 Friendly Ice Cream Corp.* ................ 1,157,000
------------
Retail - Specialty (3.8%)
92,000 Baker (J.), Inc. ......................... 408,250
60,000 BJ's Wholesale Club, Inc.* ............... 2,205,000
140,000 Borders Group, Inc.* ..................... 3,115,000
40,000 Burlington Coat Factory
Warehouse Corp. .......................... 590,000
150,000 Cost Plus, Inc.* ......................... 3,900,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
PORTFOLIO OF INVESTMENTS September 30, 1998, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
120,000 Eagle Hardware & Garden, Inc.* .......... $ 2,580,000
100,000 Guitar Center, Inc.* .................... 1,862,500
100,000 Linens 'N Things, Inc.* ................. 2,750,000
162,000 Micro Warehouse, Inc.* .................. 2,430,000
75,000 MSC Industrial Direct Co., Inc.* ........ 1,500,000
240,000 Paul Harris Stores, Inc.* ............... 1,725,000
------------
23,065,750
------------
Semiconductors (2.0%)
318,500 Aeroflex Inc.* .......................... 3,145,188
90,000 PMC - Sierra, Inc.* ..................... 2,835,000
60,000 SDL, Inc.* .............................. 750,000
196,500 TranSwitch Corp.* ....................... 2,873,813
100,000 Vitesse Semiconductor Corp.* ............ 2,350,000
------------
11,954,001
------------
Services to the Health Industry (0.4%)
82,000 Pharmaceutical Product
Development, Inc.* ...................... 2,255,000
------------
Shoe Manufacturing (0.4%)
230,000 Wolverine World Wide, Inc. .............. 2,501,250
------------
Specialty Foods/Candy (0.7%)
138,500 Earthgrains Co. ......................... 4,284,844
------------
Telecommunication Equipment (1.8%)
200,000 ANTEC Corp.* ............................ 3,075,000
175,000 Aspect Telecommunications Corp.* 4,200,000
140,000 Boston Communications Group,
Inc.* ................................... 1,120,000
390,000 International FiberCom, Inc.* ........... 2,754,375
------------
11,149,375
------------
Telecommunications (3.5%)
205,000 e. Spire Communications, Inc.* .......... 1,832,188
150,000 ITC DeltaCom, Inc.* ..................... 3,084,375
110,500 IXC Communications, Inc.* ............... 3,287,375
72,000 LCC International, Inc. (Class A)* ...... 337,500
168,000 Metromedia Fiber Network, Inc.
(Class A)* .............................. 5,460,000
100,000 MetroNet Communications Corp.
(Class B) (Canada)* ..................... 1,781,250
141,000 NEXTLINK Communications, Inc.
(Class A)* .............................. 3,295,875
100,000 WinStar Communications, Inc.* ........... 2,375,000
------------
21,453,563
------------
Water Supply (2.3%)
74,300 American States Water Co. ............... 1,968,950
136,000 American Water Works Company,
Inc. .................................... 4,267,000
61,900 Aquarian Co. ............................ 2,085,256
95,000 E'Town Corp. ............................ 3,990,000
58,300 Philadelphia Suburban Corp. ............. 1,563,169
------------
13,874,375
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
Wireless Communication (0.8%)
265,000 SkyTel Communications Inc.* ............. $ 4,753,438
------------
TOTAL COMMON STOCKS
(Identified Cost $445,649,837) .......... 496,269,530
------------
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
U.S. GOVERNMENT OBLIGATIONS (1.8%)
$ 5,000 U.S. Treasury Note
5.25% due 08/15/03 .................... 5,225,000
5,000 U.S. Treasury Note
5.625% due 05/15/08 ................... 5,475,800
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Identified Cost $10,264,453) ........... 10,700,800
------------
<PAGE>
SHORT-TERM INVESTMENTS (17.3%)
U.S. GOVERNMENT AGENCY (a) (16.9%)
103,000 Federal Home Loan Mortgage
Corp. 5.38% due 10/01/98
(Amortized Cost $103,000,000) ......... 103,000,000
------------
REPURCHASE AGREEMENT (0.4%)
2,206 The Bank of New York 5.00% due
10/01/98 (dated 09/30/98;
proceeds $2,206,652) (b)
(Identified Cost $2,206,346) .......... 2,206,346
------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $105,206,346) .......... 105,206,346
------------
TOTAL INVESTMENTS
(Identified Cost $561,120,636) (c).................... 100.7% 612,176,676
LIABILITIES IN EXCESS OF OTHER
ASSETS ............................................... (0.7) (4,045,416)
----- ------------
NET ASSETS ........................................... 100.0% $608,131,260
===== ============
</TABLE>
- -------------------
ADR American Depository Receipt.
GDR Global Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $2,019,210 U.S. Treasury Note 8.50% due 11/15/00 valued
at $2,250,473.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$91,128,417 and the aggregate gross unrealized depreciation is
$40,072,377, resulting in net unrealized appreciation of $51,056,040.
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $561,120,636)................................... $612,176,676
Receivable for:
Investments sold ............................................... 7,302,851
Shares of beneficial interest sold ............................. 488,458
Interest ....................................................... 140,065
Dividends ...................................................... 128,975
Prepaid expenses and other assets ................................. 93,696
------------
TOTAL ASSETS ................................................... 620,330,721
------------
LIABILITIES:
Payable for:
Investments purchased .......................................... 10,638,584
Shares of beneficial interest repurchased ...................... 685,527
Plan of distribution fee ....................................... 492,751
Investment management fee ...................................... 247,260
Accrued expenses and other payables ............................... 135,339
------------
TOTAL LIABILITIES .............................................. 12,199,461
------------
NET ASSETS ..................................................... $608,131,260
============
COMPOSITION OF NET ASSETS:
Paid-in-capital ................................................... $550,150,504
Net unrealized appreciation ....................................... 51,056,040
Accumulated net investment loss ................................... (43,356)
Accumulated undistributed net realized gain ....................... 6,968,072
------------
NET ASSETS ..................................................... $608,131,260
============
CLASS A SHARES:
Net Assets ........................................................ $5,821,701
Shares Outstanding (unlimited authorized, $.01 par value) ......... 285,685
NET ASSET VALUE PER SHARE ...................................... $20.38
======
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ............... $21.51
======
CLASS B SHARES:
Net Assets ........................................................ $596,833,654
Shares Outstanding (unlimited authorized, $.01 par value) ......... 29,557,228
NET ASSET VALUE PER SHARE ...................................... $20.19
======
CLASS C SHARES:
Net Assets ........................................................ $2,184,947
Shares Outstanding (unlimited authorized, $.01 par value) ......... 108,212
NET ASSET VALUE PER SHARE ...................................... $20.19
======
CLASS D SHARES:
Net Assets ........................................................ $3,290,958
Shares Outstanding (unlimited authorized, $.01 par value) ......... 161,000
NET ASSET VALUE PER SHARE ...................................... $20.44
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended September 30, 1998
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest ................................................... $ 4,126,640
Dividends (net of $24,890 foreign withholding tax) ......... 1,573,050
-------------
TOTAL INCOME ............................................. 5,699,690
-------------
EXPENSES
Plan of distribution fee (Class A shares) .................. 10,097
Plan of distribution fee (Class B shares) .................. 7,916,623
Plan of distribution fee (Class C shares) .................. 21,641
Investment management fee .................................. 3,924,618
Transfer agent fees and expenses ........................... 1,184,440
Registration fees .......................................... 147,925
Shareholder reports and notices ............................ 112,066
Custodian fees ............................................. 86,100
Professional fees .......................................... 51,285
Trustees' fees and expenses ................................ 19,244
Other ...................................................... 13,214
-------------
TOTAL EXPENSES ........................................... 13,487,253
-------------
NET INVESTMENT LOSS ...................................... (7,787,563)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain .......................................... 47,579,070
Net change in unrealized appreciation ...................... (189,235,137)
-------------
NET LOSS ................................................. (141,656,067)
-------------
NET DECREASE ............................................... $(149,443,630)
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997*
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss .................................. $ (7,787,563) $ (9,175,906)
Net realized gain .................................... 47,579,070 42,865,706
Net change in unrealized appreciation ................ (189,235,137) 84,974,039
------------- -------------
NET INCREASE (DECREASE) ............................ (149,443,630) 118,663,839
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
NET REALIZED GAIN:
Class A shares ....................................... (101,495) --
Class B shares ....................................... (73,505,455) (113,569,438)
Class C shares ....................................... (175,858) --
Class D shares ....................................... (22,340) --
------------- -------------
TOTAL DISTRIBUTIONS ................................ (73,805,148) (113,569,438)
------------- -------------
Net increase (decrease) from transactions in shares of
beneficial interest ................................ (48,225,084) 75,310,217
------------- -------------
NET INCREASE (DECREASE) ............................ (271,473,862) 80,404,618
NET ASSETS:
Beginning of period .................................. 879,605,122 799,200,504
------------- -------------
END OF PERIOD
(Including accumulated net investment losses of
$43,356 and $41,190, respectively) ................ $ 608,131,260 $ 879,605,122
============= =============
</TABLE>
- --------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
MORGAN STANLEY DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Developing Growth Securities Trust (the "Fund"),
formerly Dean Witter Developing Growth Securities Trust, is registered under
the Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is
long-term capital growth. The Fund was organized as a Massachusetts business
trust on December 28, 1982 and commenced operations on April 29, 1983. On July
28, 1997, the Fund commenced offering three additional classes of shares, with
the then current shares designated as Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year,
six years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price;
(2) all other portfolio securities for which over-the-counter market quotations
are readily available are valued at the latest available bid price prior to the
time of valuation; (3) when market quotations are not readily available,
including circumstances under which it is determined by Morgan Stanley Dean
Witter Advisors Inc. (the "Investment Manager"), formerly Dean Witter
InterCapital Inc., that sale or bid prices are not reflective of a security's
market value, portfolio securities are valued at their fair value as determined
in good faith under procedures established by and under the general supervision
of the Trustees (valuation of debt securities for which market quotations are
not readily available may be based upon current market prices of securities
which are comparable in coupon, rating and maturity or an appropriate matrix
utilizing similar factors); and (4) short-term debt securities having a
maturity date of more than sixty days at time of purchase are valued on a
mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt securities
having a maturity date of sixty days or less at the time of purchase are valued
at amortized cost.
11
<PAGE>
MORGAN STANLEY DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1998, continued
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date
such items are recognized. Distribution fees are charged directly to the
respective class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which
may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
following annual rates to the net assets of the Fund determined as of the close
of each business day: 0.50% to the portion of the daily net assets not
exceeding $500 million and 0.475% to the portion of the daily net assets
exceeding $500 million.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
12
<PAGE>
MORGAN STANLEY DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1998, continued
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services,
heat, light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund has
adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the
Act. The Plan provides that the Fund will pay the Distributor a fee which is
accrued daily and paid monthly at the following annual rates: (i) Class A - up
to 0.25% of the average daily net assets of Class A; (ii) Class B - 1.0% of the
lesser of: (a) the average daily aggregate gross sales of the Class B shares
since the inception of the Fund (not including reinvestment of dividend or
capital gain distributions) less the average daily aggregate net asset value of
the Class B shares redeemed since the Fund's inception upon which a contingent
deferred sales charge has been imposed or waived; or (b) the average daily net
assets of Class B; and (iii) Class C - up to 1.0% of the average daily net
assets of Class C. In the case of Class A shares, amounts paid under the Plan
are paid to the Distributor for services provided. In the case of Class B and
Class C shares, amounts paid under the Plan are paid to the Distributor for (1)
services provided and the expenses borne by it and others in the distribution
of the shares of these Classes, including the payment of commissions for sales
of these Classes and incentive compensation to, and expenses of, Morgan Stanley
Dean Witter Financial Advisors and others who engage in or support distribution
of the shares or who service shareholder accounts, including overhead and
telephone expenses; (2) printing and distribution of prospectuses and reports
used in connection with the offering of these shares to other than current
shareholders; and (3) preparation, printing and distribution of sales
literature and advertising materials. In addition, the Distributor may utilize
fees paid pursuant to the Plan, in the case of Class B shares, to compensate
Dean Witter Reynolds Inc. ("DWR"), an affiliate of the Investment Manager and
Distributor, and other selected broker-dealers for their opportunity costs in
advancing such amounts, which compensation would be in the form of a carrying
charge on any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the Distributor
under the Plan and the proceeds of contingent deferred sales charges paid by
investors upon redemption of shares, if for any reason the Plan is terminated,
the
13
<PAGE>
MORGAN STANLEY DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1998, continued
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts, including
carrying charges, totaled $24,581,350 at September 30, 1998.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the year ended September 30, 1998, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
1.0%, respectively.
The Distributor has informed the Fund that for the year ended September 30,
1998, it received contingent deferred sales charges from certain redemptions of
the Fund's Class A shares, Class B shares and Class C shares of $40, $1,202,521
and $2,697, respectively, and received $56,314, in front-end sales charges from
sales of the Fund's Class A shares. The respective shareholders pay such
charges which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended September 30, 1998
aggregated $1,293,443,813, and $1,487,259,823, respectively.
For the year ended September 30, 1998, the Fund incurred $100,032 in brokerage
commissions with DWR for portfolio transactions executed on behalf of the Fund.
At September 30, 1998, the Fund's payable for investments purchased included
unsettled trades with DWR of $147,825.
For the year ended September 30, 1998, the Fund incurred brokerage commissions
of $125,345 with Morgan Stanley & Co., Inc., an affiliate of the Investment
Manager and Distributor, for portfolio transactions executed on behalf of the
Fund. At September 30, 1998, the Fund's payable for investments purchased and
receivable for investments sold included unsettled trades with Morgan Stanley &
Co., Inc., of $2,785,935 and $1,589,947, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager
and Distributor, is the Fund's transfer agent. At September 30, 1998, the Fund
had transfer agent fees and expenses payable of approximately $8,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of
14
<PAGE>
MORGAN STANLEY DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1998, continued
retirement. Benefits under this plan are based on years of service and
compensation during the last five years of service. Aggregate pension costs for
the year ended September 30, 1998 included in Trustees' fees and expenses in
the Statement of Operations amounted to $5,325. At September 30, 1998, the Fund
had an accrued pension liability of $43,360 which is included in accrued
expenses in the Statement of Assets and Liabilities.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997*
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold ...................................... 491,103 $ 11,960,980 35,616 $ 899,495
Reinvestment of distributions ............. 4,011 90,052 -- --
Redeemed .................................. (245,004) (6,003,020) (41) (1,100)
----------- ------------ ----------- -----------
Net increase - Class A .................... 250,110 6,048,012 35,575 898,395
----------- ------------ ----------- -----------
CLASS B SHARES
Sold ...................................... 12,935,890 316,348,092 14,447,649 343,330,085
Reinvestment of distributions ............. 3,114,684 69,706,625 4,819,692 107,527,322
Redeemed .................................. (18,446,882) (445,847,648) (16,152,387) (377,477,428)
----------- ------------ ----------- -----------
Net increase (decrease) - Class B ......... (2,396,308) (59,792,931) 3,114,954 73,379,979
----------- ------------ ----------- -----------
CLASS C SHARES
Sold ...................................... 479,462 11,866,963 38,996 1,016,199
Reinvestment of distributions ............. 7,586 169,775 -- --
Redeemed .................................. (417,652) (10,331,269) (180) (4,719)
----------- ------------ ----------- -----------
Net increase - Class C .................... 69,396 1,705,469 38,816 1,011,480
----------- ------------ ----------- -----------
CLASS D SHARES
Sold ...................................... 254,323 6,071,021 786 20,363
Reinvestment of distributions ............. 925 20,790 -- --
Redeemed .................................. (95,034) (2,277,445) -- --
----------- ------------ ----------- -----------
Net increase - Class D .................... 160,214 3,814,366 786 20,363
----------- ------------ ----------- -----------
Net increase (decrease) in Fund ........... (1,916,588) $(48,225,084) 3,190,131 $75,310,217
=========== ============ =========== ===========
</TABLE>
- --------------
* For Class A, C and D shares, for the period July 28, 1997 (issue date)
through September 30, 1997.
6. FEDERAL INCOME TAX STATUS
As of September 30, 1998, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales and permanent book/tax
differences attributable to a net operating loss. To reflect reclassifications
arising from the permanent differences, accumulated undistributed net realized
gain was charged and accumulated net investment loss was credited $7,785,397.
15
<PAGE>
MORGAN STANLEY DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
------------------------------------------------
1998++ 1997*++ 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period ............................... $27.46 $27.71 $25.54 $17.55
------ ------ ------ ------
Net investment income (loss) .......... (0.20) (0.28) (0.23) (0.19)
Net realized and unrealized gain
(loss) ............................... (4.76) 3.92 4.32 8.34
------ ------ ------ ------
Total from investment operations ...... (4.96) 3.64 4.09 8.15
------ ------ ------ ------
Less dividends and distributions
from:
Net investment income ................ -- -- -- --
Net realized gain .................... (2.31) (3.89) (1.92) (0.16)
------ ------ ------ ------
Total dividends and distributions ..... (2.31) (3.89) (1.92) (0.16)
------ ------ ------ ------
Net asset value, end of period ........ $20.19 $27.46 $27.71 $25.54
====== ====== ====== ======
TOTAL INVESTMENT RETURN+ .............. (18.88)% 16.38% 17.53% 46.87%
RATIOS TO AVERAGE NET ASSETS:
Expenses .............................. 1.69%(1) 1.68% 1.69% 1.77%
Net investment income (loss) .......... (0.98)%(1) (1.21)% (1.03)% (1.04)%
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands ............................ $596,834 $877,539 $799,201 $534,869
Portfolio turnover rate ............... 178% 154% 149% 114%
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period ............................... $20.50 $12.20 $14.05 $8.92 $11.33 $9.67
------ ------ ------ ------ ----- ------
Net investment income (loss) .......... -- (0.12) (0.12) (0.07) (0.15) 0.04
Net realized and unrealized gain
(loss) ............................... (1.82) 8.42 (1.73) 5.20 (2.21) 1.62
------ ------ ------ ------ ----- ------
Total from investment operations ...... (1.82) 8.30 (1.85) 5.13 (2.36) 1.66
------ ------ ------ ------ ----- ------
Less dividends and distributions
from:
Net investment income ................ -- -- -- -- (0.05) --
Net realized gain .................... (1.13) -- -- -- -- --
------ ------ ------ ------ ----- ------
Total dividends and distributions ..... (1.13) -- -- -- (0.05) --
------ ------ ------ ------ ----- ------
Net asset value, end of period ........ $17.55 $20.50 $12.20 $14.05 $8.92 $11.33
====== ====== ====== ====== ===== ======
TOTAL INVESTMENT RETURN+ .............. (8.88)% 67.95% (13.17)% 57.51% (20.87)% 17.17%
RATIOS TO AVERAGE NET ASSETS:
Expenses .............................. 1.78% 1.84% 1.86% 1.92% 2.02% 1.89%
Net investment income (loss) .......... (1.32)% (1.52)% (1.14)% (0.73)% (1.32)% 0.59%
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands ............................ $340,169 $240,389 $112,982 $115,337 $67,604 $89,236
Portfolio turnover rate ............... 160% 203% 153% 88% 53% 84%
</TABLE>
- -------------
* Prior to July 28, 1997, the Fund issued one class of shares. All shares
of the Fund held prior to that date have been designated Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
MORGAN STANLEY DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
SEPTEMBER 30, 1998++ SEPTEMBER 30, 1997++
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .............. $27.50 $24.62
------ ------
Net investment loss ............................... (0.06) (0.02)
Net realized and unrealized gain (loss) ........... (4.75) 2.90
------ ------
Total from investment operations .................. (4.81) 2.88
------ ------
Less distributions from net realized gain.......... (2.31) --
------ ------
Net asset value, end of period .................... $20.38 $27.50
====== ======
TOTAL INVESTMENT RETURN+ .......................... (18.26)% 11.70%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 0.94%(3) 0.99%(2)
Net investment loss ............................... (0.23)%(3) (0.46)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $5,822 $978
Portfolio turnover rate ........................... 178% 154%
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .............. $27.46 $24.62
------ ------
Net investment loss ............................... (0.23) (0.05)
Net realized and unrealized gain (loss) ........... (4.73) 2.89
------ ------
Total from investment operations .................. (4.96) 2.84
------ ------
Less distributions from net realized gain.......... (2.31) --
------ ------
Net asset value, end of period .................... $20.19 $27.46
====== ======
TOTAL INVESTMENT RETURN+ .......................... (18.88)% 11.54%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 1.69%(3) 1.71%(2)
Net investment loss ............................... (0.98)%(3) (1.19)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $2,185 $1,066
Portfolio turnover rate ........................... 178% 154%
</TABLE>
- --------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
MORGAN STANLEY DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
SEPTEMBER 30, 1998++ SEPTEMBER 30, 1997++
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .............. $27.51 $24.62
------ ------
Net investment income (loss) ...................... 0.01 (0.01)
Net realized and unrealized gain (loss) ........... (4.77) 2.90
------ ------
Total from investment operations .................. (4.76) 2.89
------ ------
Less distributions from net realized gain.......... (2.31) --
------ ------
Net asset value, end of period .................... $20.44 $27.51
====== ======
TOTAL INVESTMENT RETURN+ .......................... (18.05)% 11.74%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 0.69%(3) 0.70%(2)
Net investment income (loss) ...................... 0.02%(3) (0.20)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $3,291 $22
Portfolio turnover rate ........................... 178% 154%
</TABLE>
- --------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
MORGAN STANLEY DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER DEVELOPING GROWTH SECURITIES TRUST
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Morgan Stanley Dean Witter
Developing Growth Securities Trust (the "Fund"), formerly Dean Witter
Developing Growth Securities Trust, at September 30, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at September 30, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
November 5, 1998
- -------------------------------------------------------------------------------
1998 FEDERAL TAX NOTICE (unaudited)
During the year ended September 30, 1998, the Fund paid to shareholders
$1.70 per share from long-term capital gains.
- -------------------------------------------------------------------------------
19
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Jayne Stevlingson
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus
of the Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
MORGAN STANLEY
DEAN WITTER
DEVELOPING
GROWTH SECURITIES
[Graphic]
ANNUAL REPORT
SEPTEMBER 30, 1998
